Weatherford International Ltd. is closing more North American operating facilities and laying off 3,000 more people, putting total workforce reductions at 14,000 this year, as it hunkers down for expected weak market conditions until late next year.
Some regions could see the market bottom by the end of the year, but it won't be in the U.S. business, CEO Bernard Duroc-Danner said Thursday during a conference call to discuss 3Q2015 results.
"Market conditions will experience further near-term activity reductions in the U.S., Latin America and sub-Saharan Africa," he said. Asia Pacific has bottomed, while the Middle East/North Africa and Russia should remain robust. "Over the medium term, we expect commodity prices to recover as the global oil supply and demand forces rebalance, sparking some early activity improvements in the second half of 2016. Pricing will continue to remain weak until 2017."
The No. 4 global oilfield services provider, which operates out of Houston, has reduced full-year 2015 capital spending to $650 million, 55% lower than in 2014.
Through the third quarter, more than 70 operating facilities were closed across North America, with 20 more scheduled to close by the end of the year. Five of seven manufacturing service centers also have been shuttered, with one more set to close by year's end and another in 2016.
"The aggregate results of these measures will mitigate the effects of the downturn," Duroc-Danner said. "Market conditions may continue to remain increasingly challenged and to help offset the decline, we plan to further reduce our cost structure to reflect the current environment."
The extreme downturn in the industry has offered the company an opportunity basically to get rid of a lot of deadweight, he said. And the result in North American revenue between the second and third quarters was evident. In North America, revenue was 55% lower year/year but it rose 2% sequentially to $824 million. Operating margin rose 493 basis points (bp). Operating income increased sequentially by 3% and by 47 bp. The modest recovery from spring breakup in Canada and continued cost reduction measures both provided the boost.
"The revenue performance in the U.S. easily outperformed the reduction in U.S. land horizontal rig count of 7%, with market share gains across several product lines," Duroc-Danner said. "Sequential incrementals were 246% while year/year decrementals were 35%. On a year-to-date basis, decrementals versus 2014 were 40%, compared with 54% during the previous downturn in 2009."
Weatherford continues to make "rapid and deep cost progress and drive structural change, while effectively redirecting our culture and strengthening our talent bench," he said. "Our actions remain centered around perennially improving our cost structure through cycles and intensifying capital allocation and cash generation as a company-wide discipline. Our direction is steadfast."
Free cash flow from operations increased to $123 million, and it's on a positive glide path. "We are confident in our ability to generate positive free cash flow every quarter going forward and on a full year basis this year and beyond. Our path further takes us toward operating excellence and a strict focus on our industrial core."
Net losses totaled $42 million (minus 5 cents/share) in 3Q2015, compared with year-ago profit of $238 million (32 cents) and sequential losses of $77 million (minus 10 cents). Operating income plunged 80% from a year ago to $120 million. Operating income margin was 5.4%, versus 145.4% and 1,008 bp in 3Q2014.
"We will take advantage of this environment and continue to aggressively rationalize our cost base, upgrade our talent bench and generate positive free cash flow from operations," Duroc-Danner said. "We will continue to exhibit spending restraint and discipline right through 2016 and 2017.
"Counting all of the cost reduction measures we have undertaken in 2014 and 2015, by the end of this year, we will have generated total cost savings of $2 billion, of which $600 million is as permanent as it is structural. We believe we can exit this downcycle, as a leaner, de-layered, more efficient and streamlined organization, ready to respond to market needs."